Class Plaintiff's Response to Automatic Stay - equitatus

Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main
Document Page 29 of 34
73. Greenberg claims that the California Class Plaintiffs' interests are well represented in the
Debtor's chapter 11 cases because they also are creditors in those cases. But like the balance of
Greenberg’s arguments, this makes no sense. As explained above, the claims asserted in the
California Class Litigation belong to the RE Loans investors, not to RE Loans itself. As such, those
claims are neither represented nor available for prosecution in the Debtors’ chapter 11 cases – just as
the California Class Plaintiffs cannot pursue derivative claims, the Debtor cannot pursue direct
claims. Therefore, the California Class Litigation claims are not “well represented” in the chapter 11
cases, they are not represented at all.
3. No Public Interest Will Be Served By An Injunction.
74. Finally, there is no public interest served here as the injunction unnecessary to protect the
debtor’s ability to reorganize. In fact, it would be a great disservice to the purposes of the
Bankruptcy Code, to allow a nondebtor defendant to avoid litigation in this manner. 22
This
Adversary Proceeding is an attempt by Greenberg to avoid litigation altogether and has absolutely
nothing to do with the Debtor's reorganization. Indeed, at times, Greenberg seems to be requesting
that the California Class Litigation be permanently, rather than temporarily, enjoined – clearly an
unavailable outcome. 23
22 See, e.g., In re Vitro, S.A.B. de C.V., 455 B.R. 571, 581 (Bankr. N.D. Tex. 2011) (denying non-debtor's request for
injunction, reasoning that "[t]he granting of injunction [under § 105] will disserve the public interest. Extending the
automatic stay or issuing an injunction for non-debtors contravenes a basic and compelling principle of federal
bankruptcy law. Like the rest of the Code, Chapter 15 focuses on protecting the debtors, non the non-debtor ..."); see also
In re Zarnel, 619 F.3d 156, 171 (2d Cir. 2010) ("The automatic stay serves a number of purposes: 'providing debtors with
a fresh start, protecting the assets of the estate, and allowing the bankruptcy court to centralize disputes concerning the
estate.'") (quoting MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 109 (2d Cir. 2006)) (emphasis added).
23 Even in situations where courts have extended stays to nondebtors, the injunctions have been quite limited in time and
scope. For example, In Rickel Home Centers, a case referenced by Greenberg, the debtor sought injunctive relief of a
securities class action against its employees. The court rejected the debtor’s arguments that potential indemnification and
contribution claims would impact the reorganization. 199 B.R. at 501 The court, however, found that discovery would
interfere with the management’s need to work on the reorganization in the coming months. Id. As a result, the court
allowed the class action litigation to proceed in resolving the motion to dismiss and only the debtor was limited in its
participation in discovery and only for a short amount of time. Id. at 501-02. See also Seatco, 257 B.R. at 476 (temporary
injunction of third party litigation against a guarantor of the debtor expired upon an uncured default of debtor to plaintiff);
Zale, 62 F.3d at 761 (temporary stay may not be extended post-confirmation to form permanent injunction extinguishing
nondebtor’s liability); Chord, 2010 WL 1257874, at *13 (finding stay that was indefinite or conditioned upon conclusion
of reorganization proceeds inappropriate; instead, extending stay six weeks to give the debtors “breathing room” for
management to focus on reorganization process).
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